Is the airline sector recovering?

Is the airline sector recovering?

Iberia plane.

Earlier this month, the US authorities They announced that, after almost two years of prohibition, they would once again allow fully vaccinated foreign tourists to enter the country. A few days later, a similar order was issued in India. In addition, to encourage tourists to visit the country, the Indian government announced that it plans to give away 500,000 free visas until next March. So to all those who wish to know the story of the Maharaja, Swagat Hay!

Jokes aside, it’s encouraging to see that countries have finally started to lift the iron curtain. According to the latest figures from International Consolidated Airlines GroupSA (IAG.MC), owner of British Airwaystransatlantic flight bookings have already recovered to 2019 levels.

According to the CEO of IAG, Louis Gallego, the company expects to fully restore North Atlantic routes early next summer. The only problem is that if London Heathrow airport systematically increases fares by up to 50% for the period between 2022 and 2027, up to 40% of passengers will use other transport hubs, which will invariably affect travel plans. the company.

On the one hand, the fact that passenger traffic has increased is encouraging. On the other hand, the market reaction suggests that investors do not expect any drastic change in terms of the company’s profitability in the near future. Furthermore, it should not be forgotten that the epidemiological situation in Europe has started to deteriorate again.

Although IAG shares are trading well below pre-pandemic levels, there is no talk of cheapness. Part of the reason is also the increase in the level of indebtedness: the company’s net debt increased from €7.6 billion at the end of 2019 to €12.1 billion.

To strengthen the balance sheet, the group issued convertible bonds and senior debt, but flatly ruled out a new capital increase. Also, we must not forget about the purchase of Air Europa. According to some estimates, if the acquisition goes ahead, the company would find itself in an even more difficult situation.

***Igor Kuchma is a Trading View analyst

Iberia plane.

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